Archives for August 2017

For many individuals, their personal residence is likely their most valuable asset. If you wish to leave your residence to a specific person when you die, you need to include the passage of your home in your estate plan to ensure that your wishes become reality.

While this blog posting will discuss some of the options available to you, it is not all-comprehensive and you need to discuss your wishes with your estate attorney (and perhaps a real estate attorney). Due to the tax laws regarding basis in your personal residence and how to compute the taxable gain when a home is sold or transferred, it is best to include your tax professional in these estate planning meetings to avoid unpleasant tax surprises.

Here are some options available to you. [Read more…] about Consider Your Options When Leaving House to Heirs

The IRS strictly enforces its requirements to claim charitable contributions. And yet, taxpayers continue to ignore these rules and find themselves being audited by the IRS. Often, not only do these taxpayers get assessed additional taxes for non-conformance of the tax rules, but are assessed penalties for their follies.

Let’s look at the case of Mark and Rose Ohde (T.C. Memo. 2017-137). When reading the facts of this case, not only is it difficult to believe that the taxpayers actually claimed these deductions, but that they went to Tax Court to appeal the IRS’s assessment.

The taxpayers argued before the Tax Court that they were entitled to a 2011 tax year noncash charitable contribution deduction of $145,250 for the more than 20,000 items of property they made to Goodwill. While residents of West Virginia, the taxpayers claim they drove to a Goodwill location in Maryland. Doing a search on the Internet for Goodwill store locations in West Virginia, 30 sites were found. How many rational persons would drive to another state to make a donation to Goodwill?

As a sampling, their 2011 claimed donations included 1,040 items of boy’s clothing, 811 items of girl’s clothing, 685 items of men’s clothing, 945 items of women’s clothing, 115 chairs, 36 lamps, 22 bookshelves, 20 desks, 20 chest of drawers, 16 bed frames, and 14 filing cabinets. Taxpayers provided for each delivery to Goodwill a one-page printed receipt that showed that Goodwill had received items in one or more of the following categories: clothing, shoes, media, furniture, and household items. There was no detail showing the number of items received or a description of the items received.

At trial, it was demonstrated that the taxpayer did not maintain a contemporaneous log showing the items contributed. Instead, the taxpayer used a TurboTax program called “Its Deductible”. For each item category entered into this program, the taxpayer showed the quantity as being “high”. The total dollar values in this program for each trip ranged from a low of $830 to a high of $14,999. However, not a single contributed item was reflected as a dollar value and the cost of the items donated was not shown. Only the grand totals were shown in this program.

If you think that the taxpayer’s were somewhat aggressive in 2011, consider the fact that for the years 2007-2010 [Read more…] about Charitable Contributions Lack Goodwill

Your business had a very challenging year. It incurred significant losses but you seemingly have the solace in knowing that you can offset your W-2 earnings and interest and dividend income with those losses. But then you receive unexpected news from your tax professional – you are unable to deduct your S Corp. losses because you lack basis.

What is “basis”? In a nutshell, a shareholder may not deduct expenses of an S corporation [Read more…] about Surprise – Why You Can’t Deduct Your S Corp Losses?

On July 24, the Treasury Inspector General for Tax Administration (TIGTA) issued a report criticizing the IRS for hiring more than 200 employees with previous conduct and performance issues. The report found that 10 percent of the more than 2,000 former employees rehired by the IRS between January 2015 and March 2016 had been previously fired while under investigation for a substantiated conduct or performance issue.

Of the more than 200 rehired employees, 86 had been “separated” from the IRS while under investigation [Read more…] about IRS Rehires Fired Employees with Conduct Issues

We get about 4-6 new 1040 clients every tax year who used one of the more popular software programs that allow taxpayers to self-prepare their personal tax returns. They seek our assistance when they get audited by the IRS and discover that their returns had tax errors in them and they owe the IRS significant taxes, interest and penalties.

We currently are representing a taxpayer who the IRS claims owes $40,000. The taxpayer claims that he carefully answered the questions in the software package and can’t believe that he owes the IRS this sum of money.

We are not saying that these tax preparation software packages are faulty, unreliable, and should not be used. Everything in life has its place. If you have a simple tax return with a couple of W-2s and interest income, then these programs are likely perfect for your tax preparation needs. The problem is [Read more…] about Self-Prepared Tax Returns